What are the provisions under Section 62(1)(c) regarding the rights of existing shareholders during the issuance of new shares, and how can they exercise these rights?

Section 62(1)(c) of the Companies Act, 2013, deals with the rights of existing shareholders when a company proposes to issue new shares. This provision is crucial because it aims to protect the interests of existing shareholders by allowing them to maintain their proportional ownership in the company. According to this section, if a company intends to issue new shares, it must first offer these shares to its existing shareholders in proportion to their current shareholding. This is often referred to as the “right of first refusal.”

The legal framework specifies that before issuing any shares to a third party, the company must send a notice to existing shareholders offering them the opportunity to purchase a number of shares that corresponds to their existing ownership stake. This is detailed in Section 62(1)(c), which indicates that the offer must be made in writing and provide clear terms for acceptance. The company should also specify a time period within which shareholders can exercise their rights—usually, a minimum of 15 days is recommended to provide ample time for decision-making.

To exercise their rights, existing shareholders must respond to the company’s offer within the stipulated time frame. Typically, they would need to communicate their acceptance in writing, specifying the number of shares they wish to purchase. The response should also accompany any necessary payment for the shares being acquired. If a shareholder does not respond within the given timeframe, they may lose their right to purchase the offered shares, allowing the company to proceed with the issuance to other parties.

Practically speaking, it is advisable for shareholders to keep track of any communications from the company regarding new share issuances. Shareholders should also familiarize themselves with their rights under the Companies Act, including Section 62(1)(c), to ensure that they do not miss out on opportunities to maintain or increase their stake in the company. If they believe that their rights have not been honored, shareholders can seek recourse through the National Company Law Tribunal (NCLT) under Section 241 of the Act, which allows for oppression and mismanagement claims.